The present invention relates generally to the management of commercial transactions and financial obligations that arise from those commercial transactions and more specifically to the generation of investment vehicles for trade-related financial obligations.
As commerce continues to grow and expand globally, commercial transactions have become increasingly complex. When dealing with manufacturing contracts, for example, typical problems may arise in respect of the original contract terms themselves; financial terms associated with such contracts; manufacturing and delivery concerns associated with such contracts; as well as with many other areas.
One common problem in commercial transactions involves financing the transaction itself. Previously, letters of credit were used as both the payment vehicle for a trade transaction and credit-enhancement for trade finance purposes. Finance proceeds were typically used to invest in materials and labor to fulfill the order. Letters of credit follow strict and precise guidelines, as typically dictated by the lending institutions issuing the letters of credit. Problems can easily arise in intricate commercial transactions between manufacturers and buyers, delaying and complicating payment to the manufacturer or its financing bank.
Full Service Trade Systems and improvements thereon are described in U.S. Pat. No. 5,717,989, issued on Feb. 10, 1998; U.S. Pat. No. 6,151,588, issued on Nov. 21, 2000; U.S. patent application Ser. No. 09/981,616 filed on Oct. 16, 2001; U.S. patent application Ser. No. 09/981,637 filed on Oct. 16, 2001; U.S. patent application Ser. No. 09/981,645 filed on Oct. 16, 2001; U.S. patent application Ser. No. 09/981,642 filed on Oct. 16, 2001; and Patent Cooperation Treaty International Application No. PCT/US01/32379, filed on Oct. 16, 2001 and published as W.I.P.O. Publication No. WO 02/33514, collectively referred to as “Related patents and applications”.) The Related patents and applications are herein incorporated by reference in each of its entirety.
As disclosed in the related patents and applications, through the central transaction system, any number of parties can accurately and quickly monitor the status of the transaction. Also, through this system, payments may be electronically monitored based on satisfaction of certain conditions. This commercial transaction control system can coordinate with financial institutions to not only supplant letters of credit, but also provide means for paying parties at specified dates. For example, completed invoices are typically paid at a net day period, such as 30 days net or 60 days net. Therefore, even though the transaction is completed, the buyer's financial obligations are not transmitted to the vendor until this period of time has expired.
In existing commercial transactions, net payment dates typically reflect the period of time during which the buyer processes an invoice. It is typical that the invoice is verified by a receiving department and then forwarded to an accounts payable department. This accounts payable department must process the invoice, confirm everything is in proper order and then authorize the payment. In paper-based transactions, this can be a slow and time consuming process, especially with high volume buyers that handle significant numbers of shipments/invoices.
Therefore, the net payment date is typically included or understood in the contract between the buyer and vendor. Although, with the electronic trade platform, the delay period for payment is not as important. As the invoices can be verified in real time, steps associated with the accounts payable department can be avoided. Although, these contract terms still include these delay periods.
The typical commercial contract is negotiated based on these net terms. For example, the vendor may offer a lower price with a net-30 day payment period compared with a net-90 day payment period.
The payment period may also be reflective of the buyer's creditworthiness. If a buyer may not be as creditworthy, the vendor may require a 15 day net or other short term net to help hedge against potential losses of missed or incomplete payments. For example, if the buyer has several outstanding invoices with short term nets, the vendor may be able to refuse future transactions until the invoices are paid in full. But with an extended net period, the vendor may not be able to demand early payment in full without incurring further obligations such as by taking on more contracts.
With financial obligations having delayed payment periods, these receivable accounts can be classified as short-term loans. The payment obligation is triggered by a vendor's event, such as shipping of goods or receipt by the buyer. The buyer is then both in receipt of the vendor's goods and now the vendor's money, with the vendor holding a note with a bank-authorized commitment. As the vendor waits the net payment period, these financial obligations may be controlled by the buyer's financial institution or a third party escrow account.
Current systems do not provide for investment or financial options with respect to these outstanding notes. One current existing system for trading financial instruments is the securitization and trading of mortgages. These accounts are bundled based on selected criteria and then are able to traded in open markets as security instruments. Mortgage-backed securities provide for long-term investment options based on the long term nature of the underlying mortgage loan itself.
Although, there currently does not exist a system allowing for the securitization and/or trading of short term financial obligations and/or accounts receivables relating to commercial transactions. A significant short-coming in trade debt instruments is the reliability (e.g. creditworthiness) of the parties to the transaction. The market participants do not have enough information to reliably trade debt instruments unless they include a defined standardization, such as with mortgage-backed securities. Such standardization does not exist with many other debt instruments to support open-market trading.